Parents even sacrifice their own retirement to help out
Family and friends played a major role in the US housing market, supporting the purchase of $317 billion worth of property across America last year, and putting the “Bank of Mom and Dad” (BoMaD) in the top seven of the largest housing lenders in the US, according to Legal & General Group’s new report.
BoMaD lenders supported the purchases of approximately 1.2 million homes, giving or lending an average sum of $39,000.
“For many, perhaps most, young adults, buying a house without help is an increasingly unattainable goal,” said Legal & General Group Chief Executive Nigel Wilson. “More than half of prospective homeowners under the age of 35 now expect to have help from family or friends to buy a home; this is worrisome from several standpoints.
“Over half of parents and others helping finance home purchases that we surveyed agreed that it is harder for younger generations to get onto the property ownership ladder than it was for them,” he said. “While they cited the failure of income to keep up with the cost of living (64%) and high rents (49%) as reasons for this generational difficulty, the larger issue was property prices, which nearly three-quarters of BoMaD lenders say have risen to a point where they are unaffordable.”
Legal & General also conducted the study in the UK and found that more than a quarter of all buyers got help from parents, grandparents or other relatives to get onto the property ladder. Similarly, the new US report found that an average of one in five buyers receive BoMaD gifts or loans.
The study revealed that BoMaD lenders go to great lengths just to help out, including taking out a loan (15%), raiding their 401(k) savings (8%), and even downsizing their own homes (6%), or coming out of retirement (3%).
But this may do more harm than good as it may cause the younger generations to be dependent on their parents and grandparents to buy a home. The study found that many millennials have lost interest in owning their own home. Forty-three percent of those under 35 who don’t already own said they don’t see it changing in the next five years. 40% of millennials pointed to down payments as the reason for that, saying five years is not enough to save up for it.
“BoMaD reflects, first and foremost, a housing market where significant problems remain in matching the supply and demand of different types of housing, most notably starter homes and affordable housing of all kinds. As the population changes and the millennial generation strives to join the homeowning democracy, new thinking is due on meeting the needs and aspirations of Americans,” said Wilson.